Posted on 02/14/2006 9:48:51 AM PST by LouAvul
NEW YORK (Reuters) - The government may waive up to $7 billion in royalty payments from companies pumping oil and natural gas on federal territory in the next five years, the New York Times reported on Tuesday, citing administration officials and budget documents.
The royalty relief would amount to one of the biggest giveaways of oil and gas in U.S. history, even though the administration assumes oil prices will remain above $50 a barrel throughout that period, the Times report said.
The report cited estimates in the Interior Department's recent budget plan that would allow companies to pump about $65 billion in oil and natural gas without paying royalties.
Administration officials cited by the report said the benefit stems from regulations dating back to 1996, when energy prices were relatively low and lawmakers wanted to encourage exploration in higher cost areas such as the deep waters of the Gulf of Mexico.
Much of the oil and gas from such leases is just beginning to be pumped due to the time required to explore deep waters and build large offshore platforms.
"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the federal Minerals Management Service, according to the report. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."
Lower costs keep the prices down.
The government (that's you) owns the oil in the ground on federal land, and, like any mineral owners, gets its cut --- called the royalty.
I own mineral rights, I get my 1/8 from the operator who leases from me.
I operate oil and gas wells, I pay my 1/8 to the mineral owner from whom I lease.
Here, the government cut its royalty to encourage domestic exploration --- and to get some money, when it was previously getting none.
It's not that hard.
The Canadian Government collected $3 Billion in royalties from the Alberta Oil patch last year and no one is complaining.
The oil industry is flooded with cash right now. If this story is true the US government is subsidizing an industry that is recording record profits.
Sorry, I don't get it.
I'm sorry I don't buy it. This sounds more like a payback to a monopoly with lobbying power.
It does not sound like free enterprise being encouraged, but nice try.
Someone please prove that this is not a lobbyist driven outcome at the public's expense.
Nope, doesn't impact prices at all .. the only things that do that are supply and demand.
The reason for incentives (in the form of smaller royalty requirements) back in the 90's was to encourage more drilling .. not having to pay the royalties meant that those willing to risk exploration and drilling would get to keep more of the $$$ they got for what they found.
Now that the oil from those projects is coming in the libs are ratcheting up their cries of GIVE AWAY, GIVE AWAY, in effect changing the rules after the game is underway.
You're exactly right.
Further, don't hand me a bowl of manure and tell me it's chocolate ice cream.
Paying royalty fees to the Government is counter productive if you ask me when that very Government of ours is asking for more oil drilling. It costs a lot of money to bring in a well and with the very low prices for oil not many companies wanted to expend a lot dollars exploring for new sources of oil/gas. If you add to the low oil prices the royalties paid for drilling on federal lands, you have a lack of drilling IMHO.
I think royalties to the federal government should be done away with as long as there is an agreement that the oil/gas well producer will leave the surrounding area like they found it. They are doing a wonderful job here in Oklahoma of cleaning up old oil/gas sites that were eyesores and not safe. The Government already makes huge amounts of money off the gasoline tax across the Country so why should they get royalty money as well so they can continue to spend on their pork projects.
If we want more domestic oil drilling, you have to do something and this is a start IMHO.
It's not that hard.
Klintoon's responsible for the royalty abeyance. The Bush Admin is smart enough to know that some fields are thin margin prospects. And with the product reaching the consumer stream now, the Government will reap the excise taxes and make a bundle.
Sorry but drilling companies are jobbers. They work for fee unless they have a joint venture agreement with the lease holder.
A drill program punches out at $2.5 Million minimum whether it's hard rock or oil.
That is serious cash. Drilling companies are not worried about rayalty costs in this market. They're more concerned with a supply shortage of rigs and crew.
If I was younger I'd get my ticket to pound string into the ground. I'd be very busy and very well off.
Royalty payments are not a balance sheet item for drilling companies.
How dare you suggest that the US government not subsidize a private industry making record profits! Why thats enough to get called a socialist here!
How dare you suggest that the US government not subsidize a private industry making record profits! Why thats enough to get called a socialist here!
Yeah, but PKM, this is stupid politics. Just wait until the Dems get ahold of this one, for whatever reasons may apply.
"The oil industry is flooded with cash right now."
Administration officials, maybe Bush himself, are angling for post-2008 paybacks - , jobs, speaking fees, backend payoffs. It's another ripoff.
"How dare you suggest that the US government not subsidize a private industry making record profits!"
Yeah, that wonderful 10.2% return on capital is just so wonderful. (To compare, McDonalds is around 30%, coke 24%, etc.)
This was a trade on marginal properties that would not have otherwise been developed because there were more profitable fields in other countries.
Basically, the US is making money that it would not otherwise have made --- a clearance sale on leftover inventory that would otherwise go in the dumpster, essentially.
It's hardly a give-away.
Bush and Cheney just giving more money to Haliburton and their oil cronies!~
Made sense at 50 a barrel, does it at 70?
Regardles, when oil companies are reporting record profits the timing of such and issue couldn't have been worse.
"Made sense at 50 a barrel, does it at 70?"
Try it "made sense at $28."
A deals a deal.
The gov got the benefit of exploration at $28, when it was unprofitable for the oil companies to do so. So NOW the govenment should be allowed to renig, while the oil companies are recouping the money they LOST?
Oil is cyclical; to change the deal on the upside of the curve is having your cake and eating it to.
"Paying royalty fees to the Government is counter productive if you ask me when that very Government of ours is asking for more oil drilling"
So the government should just give its oil away to whomever wants it?
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